Why I Wasn’t Surprised by Kaleidescape’s Demise

The news of Kaleidescape’s imminent demise last week sent shockwaves through our industry.  Numerous articles have exhibited a level of emotion we don’t often see in home technology news. Surprisingly absent from the commentary, however, is that this news should have come as no surprise to anyone.
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The news of Kaleidescape’s imminent demise last week sent shockwaves through our industry. Numerous articles and the comment sections that accompany them have exhibited a level of emotion we don’t often see associated with home technology news. Universally, and rightfully, regret is being expressed for the fate of the company’s 70 employees. Some have reached for the pitchforks, blaming the DVD-CCA for saddling the company with exorbitant legal fees resulting from a decade long lawsuit. Others have simply lamented the fact that such a brilliantly engineered line of products could simply cease to exist.

Surprisingly absent from the commentary, however, is that this news should have come as no surprise to anyone.

In many ways Kaleidescape’s downfall should serve as a stark warning for home tech pros and manufacturers alike about the circumstances that follow when market realities shift, and companies don’t.

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The Alto by the belated Kaleidescape

Kaleidescape was founded in 2003, which is a virtual eternity when viewed in the context of in-home entertainment. At that time, Netflix customers were still receiving movies in the mail and the first AppleTV was three years from being launched. Roku’s first video streaming box wouldn’t appear until 2008, and Plex hadn’t yet been invented, much less had it evolved into the ubiquitous juggernaut it’s since become among home media server enthusiasts.

Clearly much has changed 13 years later, when a 4K-capable Roku can be had for around $120 and low-cost streaming video services are rapidly overtaking physical media. With very minimal effort, consumers can install a program such as Plex on any number of devices to achieve what is in effect the same functionality of a Kaleidescape system. Did I mention that Plex is free?

What never changed was that, for all its polish, Kaleidescape was still very, very expensive. Touted for its breakthrough low price of $2,295, the company’s Alto player, released in 2015, was still fully 19 times the price of a Roku 4. Could the Alto outperform a Roku in a bench test? Certainly. Would these performance differences compel the average consumer to spend nearly 20x the price? Unlikely. And while some might argue that Kaleidescape wasn’t aiming for the “average consumer,” the unfortunate reality for the company was that most wealthy people care just as much about value as the rest of us.

The hard truth for Kaleidescape was that the market had simply overtaken them. Their products didn’t perform a single core function that their competitors couldn’t, at a tiny fraction of the price no less. In reality Kaleidescape could only do the same things better. And, in the eyes of a consumer comparing price tags, how much better would hardly seem to matter.

There is a lesson to be learned here. Downmarket forces similar to those that ultimately enveloped Kaleidescape have set their sights squarely on the broader home technology space. From home automation and control, to robust WiFi systems, and audio/video distribution, there’s not a corner of our industry that isn’t being targeted by some technology giant, nimble startup, or in many cases both. For now it’s easy enough to point out core functions that our high-end, protected lines can perform that our nascent competition cannot. But what are we to do when the HomeKits and Nests of the world catch up? How long it will take for this to happen is anyone’s guess. But that they will catch up eventually is certain.

It should be clear now that as an industry we need to face these market challenges head on. A future of increasingly commoditized hardware and ever-falling price points awaits us. And as these low-priced, consumer focused solutions reach maturity, convincing consumers to spend more on protected lines will become increasingly difficult. Finding profitability in these conditions won’t be easy. But to stay relevant in this space for the long haul we have no choice. That is unless we want to stay the course, clinging to a hope that, given similar core functionality, performance advantages will indefinitely compel consumers to open up their wallets.

I suppose we can ask Kaleidescape how well that worked out. Tragic? Yes. Surprising? Not really.

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